Shareholders Concerned About Quality of Proxy Advice

Mutual funds, pensions and other large shareholders that rely on two large proxy advisory firms, Glass Lewis and Institutional Shareholder Services, are concerned that new ownership at the businesses might be affecting the quality of the advice they impart, The Wall Street Journal reports.

In particular, Xinhua Finance of Shanghai, which has ties to the Chinese government, increased its stake in Glass Lewis from 19.9% to buy it outright, and just last week, two of the firm’s top research executives resigned due to concerns about Xinhua Finance.

“I am uncomfortable with and deeply disturbed by the conduct, background and activities of Glass Lewis’s new parent, its senior management and its directors,” said Jonathan Weil, the former director of research at Glass Lewis.

“The Chinese government is a very powerful and opinionated piece of machinery,” agreed John Bogle, founder of Vanguard.

However, Dan Connell, chief operating officer at Xinhua Finance, said the Chinese government only owns 1% of Glass Lewis and that its proxy advisory business is kept distinct from its investor relations service.

The concerns at ISS, which RiskMetrics acquired late last year, are that should RiskMetrics go public, as it is considering, it could beef up its corporate governance consulting business, which would mean it could be more inclined to side with management.